TaxTMI 
TaxTMI 
2023 (6) TMI 816
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.... of manufacturing, trading and Job work of Paints and Allied Products, Printed Tin and Metal Containers & Financing etc. Assessee electronically filed its return of income for A.Y. 2008-09 on 30.09.2008 declaring total income at Rs. 10,43,43,498/-. The case of the assessee was selected for scrutiny and thereafter assessment was framed u/s 143(3) of the Act vide order dated 31.12.2010 and the total income was determined at Rs. 17,03,20,450/-. 4. Aggrieved by the order of AO, assessee carried the matter before CIT(A). CIT(A) vide order dated 15.03.2023 in Appeal No.191/10- 11/1149 granted partial relief to the assessee. Aggrieved by the order of CIT(A), Revenue is now in appeal and has raised the following grounds: 1. "The CIT(A) erred in law and on facts of the case in admitting the additional evidence without properly appreciating facts and circumstances of the case. 2. The CIT(A) erred in law and on facts of the case in deleting the addition of Rs. 35,121/- without appreciating the fact that assessee failed to deposit the amount of employees contribution to provident fund before the 'due date' as defined in Explanation to Section- 36(1)(va) of the Income Tax A....
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....erred in deleting the addition of Rs. 70,33,825/- on account of disallowance u/s 80IB of the IT Act 1961. 3. That the appellant craves, leave or reserving the right to amend modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal." 8. We thus proceed with ITA No.4115/Del/2013 filed by Revenue. 9. Before us, at the outset, both the parties submitted that ground no.3 in ITA No.4115/Del/2013 (A.Y. 2008-09) and Ground No.1 in ITA No.764/Del/2018 (A.Y. 2014-15) are on a common issue namely disallowance u/s 14A of the Act. Similarly, Ground No.5 (A.Y. 2008- 09) & Ground No.2 (A.Y. 2014-15) are on disallowance u/s 80IB of the Act. The submissions would therefore be common in both the appeals. 10. Ground No.1 : Revenue is challenging the action of CIT(A) in admitting the additional evidence without properly appreciating the facts and circumstances of the case. 11. Before us, Learned DR on this issue submitted that during the assessment proceedings, assessee had not filed the details called for by the AO and in such a situation, the AO was fully justified in proceeding with framing of assessment order on the basis of ....
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....he assessee by the decision of Hon'ble Apex Court in the case of Checkmate Services Pvt. Ltd. and others vs. CIT & others (2022) 448 ITR 518 (SC). He, therefore, submitted that the ground be decided accordingly. 17. Learned DR on the other hand did not controvert the aforesaid submissions made by Learned AR. 18. We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to delayed deposit of employee's contribution of PF which was treated as income by AO but deleted by CIT(A) by following the decision of Hon'ble Delhi High Court. Before us, Learned AR has fairly submitted that the issue in the present ground is covered against the assessee by the decision of Hon'ble Apex Court in the case of Checkmate Services Pvt. Ltd. (supra). In view of the aforesaid submissions made by Learned AR, we uphold the action of AO and set aside the order of CIT(A) on this ground. Thus this ground of Revenue is allowed. 19. Ground No.3 of the Revenue and CO of the assessee are interconnected and is with relation to the disallowance u/s 14A of the Act. 20. During the course of assessment proceedings, AO noticed that asses....
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....to be disallowed u/s 14A of the Act, he submitted that when once CIT(A) has recorded a finding about non-recording of proper satisfaction by the AO then the CIT(A) should not have proceeded to enhance the disallowance made by assessee. He, thereafter, submitted that identical issue arose in assessee's own case in A.Y. 2014-15 before the Tribunal and the Hon'ble Tribunal in ITA No.7604/Del/2017 vide order dated 18.11.2020 had held that no further disallowance over and above that was suo moto made by assessee is called for. He, therefore, submitted that the disallowance u/s 14A be restricted to suo moto disallowance already made by Assessee. 24. We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to the disallowance u/s 14A of the Act. It is an undisputed fact that assessee had made as suo moto disallowance of Rs. 7,50,000/- u/s 14A of the Act being the salary of Directors and expenses attributable to the tax free income earned by assessee. It is also a fact that CIT(A) while deciding the issue has noted that suo moto disallowance made by assessee was not found to be defective by AO and no adequate satis....
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....e cost of acquisition of capital assets being right to carry any business investments and financing was Nil. He, thereafter, considered the amount of Rs. 4,34,31,471/- received by the assessee as Short Term Taxable Capital Gains and made its addition. 27. Aggrieved by the order of AO, assessee carried the matter before CIT(A). CIT(A) decided the issue in favour of the assessee by observing as under: 8.4 "I have carefully considered the impugned assessment order and critically examined appellant's submissions in light of a) share subscription agreement 6/2/2006, b) Business Cooperation Agreement 14/06/2006 and c) other related documents/agreements. On deep consideration of the entire issue, following questions are framed for adjudication at my end. 8.4.1 Whether the compensation received by appellant amounting to Rs. 434,31,471 for non start up of assured insurance business by PFGM and transfer of bundle of rights/obligations as investment partner, is chargeable to tax under the head capital gains? 8.4.2 In case answer to above is No, whether said compensation can be taxed under the head other sources u/s 56 of the Act? 8.5 In my opinion, the a....
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....ive, it is manifest that stated compensation is not merely for transfer of one or the more tangible rights but same is received for transfer of bundle of rights as investing partner, and has nothing to do with capital gains being purely capital receipt non chargeable to tax as whole profit making apparatus is impaired as it includes compensation for not to take any legal action against PFGM, compensation for vanish of hopes of appellant to be actual/real investor/partner in proposed insurance business, which business could not take off; That is, it is not allowable to dissect the consolidated bargained price into trenches/pieces and then fix the notional liability under capital gains with artificial reference to section 55(2)(a) (deemed NIL Cost). This is supported by Supreme Court in Vodafone's case 341 ITR Page 1 where it is interalia observed as under: "..As a general rule, in a case where a transaction involves transfer of shares lock, stock and barrel, such a transaction cannot be broken up into separate individual components, assets or rights such as right to vote, right to participate in company meetings, management rights, controlling rights, control premium, brand....
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....y to enter into joint venture agreements or rights for trading in the same, since compensation was received prior to commencement of proposed insurance business, since compensation pertains to impairment of profit making apparatus itself, same is non taxable capital receipt; Reliance is rightly placed by assessee on Supreme Court order in case of Saurashtra Cement 325 ITR 422, Delhi ITAT Sak Industries 1 SOT 798, Also it is rightly stated that in absence of cost of said bundle of rights being computable, no capital gains liability can arise in hands of appellant. Reliance is rightly placed on Supreme Court order in D. P. Sandhu Bros.273 ITR Page 1, that where cost is inderminate, capital gains cannot be charged to tax. Delhi High Court latest verdict in case of Khanna and Anandhanam order dated 29 January 2013 is squarely applicable to present case : 4. The contention put forward on behalf of the assessee is that the amount represents compensation for the sterilisation of a source of income, namely referred work from DHS through the Calcutta firm of chartered accountants and where an amount is received for loss of a source of income it would represent capital rece....
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....nsurance business with any other party. Further, genuineness of transaction is beyond shadow of doubt. It is no body's case that subject transaction is sham. Since shares are separately transferred and subject matter of capital gains in subsequent years, no correlation can be established between subject compensation for transfer of bundle of rights and transfer of shares of JV Co.; Since all heads of taxation are mutually exclusive, and since in my opinion subject compensation cannot be taxed under the head capital gains being capital receipt for transfer of bundle of rights with cost indeterminate, same cannot be taxed under the head "other sources" treating it as return on investment where investment was Rs. 64,00,000 only as explained by Supreme Court in D. P. Sandhu case 273 ITR Page 1 Since this compensation in substance is akin to liquidated damages and compensation received by a buyer who is not allotted/delivered flat as per agreed time schedule, is held to capital receipt by Himachal Pradesh High Court in case of CIT vs H.P. Housing Board 340 ITR 388 "1. Whether, on the facts and in the circumstances of the case, the Hon'ble Tribunal was....
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.... nature of a capita! receipt. It was found that the vendor (DCM Ltd.) was under an obligation to hand over physical, peaceful and vacant possession of the property to the Assessee but did not do so and because of its failure, it was liable to pay damages to the Assessee. We do not find any error in the view taken by the Tribunal and are of the view that the appeal does not raise any substantial question of law that would warrant our interference under section 260A of the Incometax Act. Ahd ITAT in case of Shri Rama Multi Tech Ltd. vs. ACIT 92 TTJ 568 A.Y. 2000-01. The interest or liquidated damages received by the assessee on account of delay in supplying capita! goods or for delay in executing construction work was a capital receipt. Delhi High Court in case of CIT vs R.D. Ramnath Co. 164 Taxman 317 Capital Receipt Sub Topic Liquidated damages: For delay in handing over property Summary A.Y. 1990-91. The assessee hadpurchaised an immovable property. On account of delay in handing over the property, it received certain liquidated damages from the seller. The amount received was capita! receipt not liable to tax. In view of above, ground ....
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.... (iv) Right to carry on any business, tenancy rights, stage carriage permits loom works. 31. He submitted that the compensation received by the assessee does not fit or fall into any of the clause of capital assets defined u/s 55(2)(a) of the Act. More so, as the assessee was only investing partner/shareholder of the New Company, the assessee was not to participate in any way in the day to day business and only PNB and Vijaya Bank were engaged in Life Insurance business in India. He submitted that in the absence of regulatory approval, no business activity could take off and therefore the business never came into existence and compensation received by the assessee had no connection with any business that the assessee was either carrying or wanted to carry. He further placed reliance on the decision of Hon'ble Delhi High Court in the case of CIT vs. HCL Inforsystem Ltd. TS- 725-HC-2015 (Delhi) wherein Hon'ble Delhi High Court has held that upon termination of a Joint Venture Agreement, assessee's income earning apparatus was impaired and its source of income got sterilized and it was held that the receipt by the assessee was of capital in nature. Learned AR placing reliance....
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.... 80IB of the Act was allowed by department. The submissions of the assessee was not found acceptable to AO. AO noted that no audit report of Jammu Division was furnished before him, the assessee was holding huge number of shares in Berger Paints Ltd. and therefore there was a direct nexus between the Jammu Division and Berger Paints. He also noted that out of total sale from the Jammu Division, most of the sale was made to Berger Paints only. He also noted that assessee was not earning any income in the Manufacturing of Processing business but on other hand it was claimed deduction u/s 80IB of the Act. He thereafter by invoking the provision of Section 80IB (10) of the Act, concluded that there was close connection between the assessee and Berger Paints Co. to whom most of the sale were made from Jammu Division and assessee was not generating much profits in the business from other business whereas the return generated from Jammu Division was higher than the total income of the Manufacturing and Processing business as per his working tabulated at page 23 of the order. He thereafter recalculated the deduction u/s 80IB of the Act at Rs. 38,77,450/- as against the claim of deduction o....
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....n had been considered for claiming deduction u/s 80IB of the Act. He further submitted that before CIT(A) additional evidences were filed under Rule 46A and CIT(A) had called for remand report from the AO. CIT(A) after considering the assessee's submissions, remand report and assessee's reply to the remand report had allowed the claim of the assessee. He further submitted that the action for invoking the provision of Section 80IB(10) was not based on record but based on assumption that the manufacturing division of the assessee was not earning profits. He further submitted that AO has not re-determined sales but has re-computed profits of all manufacturing units by allocating all the expenses and depreciation to manufacturing division irrespective of the fact that most of such expenses relate to the other activities of the assessee. He further submitted that if AO wanted to invoke Section 80IB (10) of the Act, he should have determined ALP of sales to related parties to demonstrate that the sales to related parties are made at higher price to claim excess deduction u/s 80IB of the Act. He further pointed to the sample copies of the invoices placed in the paper book and from there h....